A home for sale in the Denver area. / David Zalubowski, AP file

by Julie Schmit, USA TODAY

by Julie Schmit, USA TODAY

The Standard & Poor's/Case-Shiller home price index for December shows home prices posted the biggest year-over-year increase last year in six years.

Boosted by decreasing inventory and increasing demand, the 20-city index shows prices rose 6.8% in 2012 compared to the year before with price hikes in 19 of 20 major cities tracked, according to the report released Tuesday. Only New York fell, down 0.5%.

The Case-Shiller national composite index, which covers all nine U.S. census divisions, posted a 7.3% gain in the fourth quarter over a year earlier.

Home prices ended 2012 with "solid gains," said David Blitzer, chairman of the home price index committee. Housing and residential construction led the economy in the 2012 fourth quarter, he added.

The strong movements, combined with other housing data, suggest that while housing is on the upswing, some of the strongest numbers may have already been seen, Blitzer says.

In a separate report Tuesday, the government said new home sales rose almost 16% in January.

Phoenix continues to lead the recovery with prices up 23% year-over-year. It's followed by San Francisco, up 14.4%, and Detroit, up 13.6%, S&P says.

Atlanta posted its biggest year-over-year increase since 1991 - 9.9%.

The housing market helped pulled the economy into recession in 2007 but it has finally emerged as a bright spot in the economy.

The strong final few months of the year helped to "cement the housing recovery," says Stan Humphries, Zillow's chief economist.

He expects some moderation in home value appreciation this year but says the housing recovery is on a stable footing, fueled by strong fundamentals of high affordability and increasing household formation.

A dwindling supply of homes for sale is also helping prices.

In January, the supply of homes for sale fell to 4.2 months, nearly an 8-year low, the National Association of Realtors says. That means if no more homes came on the market, they would all be sold within 4.2 months.

The tight inventories are spurring bidding wars and multiple offers in some markets, particularly out West where supplies are most tight. Much of the country is now a seller's market, NAR says.

The winter months are typically slower in the housing market. But high demand and tight inventories in many markets helped "keep things at a boil" into January, Humphries says.

Zillow's home value data shows values continued to rise in January, leaving them up 6.2% year-over-year.

Investors continue to purchase many homes. In January, they accounted for 19% of home sales, down from 23% a year ago, NAR says.

Low interest rates are also fueling demand from first-time buyers and those who lost homes to foreclosure or short sales several years ago, says John Burns, CEO of John Burns Real Estate Consulting. Rates edged up slightly to an average of 3.56% for the week ended Feb. 21 for the 30-year-fixed rate loan.